At the Shanghai international auto show held late last month, Chery Automobile Co. and Zhejiang Geely Holding Group Co. for the first time unveiled their multiple sub-brands. Chery showed 32 products under its four sub-brands, Chery, Riich, Rely and Kerry.
Geely, meanwhile, displayed 22 cars under an equal number of sub-brands, Geely, Emgrand, Gleagle and Shanghai Englon. Each sub-brand carries a different badge.
Both companies hope the adoption of a multi-brand strategy will help them explore different market segments with distinctively branded products. Yet until now, Chery and Geely have been weak brands on the domestic market and even more so outside China.
Their efforts to build multiple brands simultaneously will therefore only add confusion and undermine their already low brand recognition.
At the Shanghai auto show, visitors were indeed impressed by the sheer number of new cars the two companies displayed. But they also felt bewildered by their multiple sub-brands.
"These sub-brands are so confusing," said a colleague who came to see the show from Germany.
To be frank, it's not just foreigners. Chinese visitors like me are also confused by so many sub-brands. Even today, I still have trouble telling which is which. And it's not just confusion that will harm Chery and Geely. The expense needed to run multiple marketing campaigns will probably do more to sap strength from the two companies.
Established in the late 1990s, both automakers are small players by international norms. In 2008, Chery sold 356,093 vehicles while Geely only sold 221,151 units, according to Jato Dynamics, a data consultancy. Hit hard by slumping sales, Chery Automobile Co. ran out of cash in late 2008 and had to rely on government-controlled banks for financing. Earlier this year Geely's president Li Shufu admitted to Chinese media his company had accumulated some 10 billion yuan ($1.5 billion) in debt.
At the Shanghai auto show this year, it was plain to see that all international players are leveraging their strong brands to push into China, the only market that is growing worldwide. With weak brands and limited resources, if Chery and Geely want to survive the competition they would do well to remain focused in their operations, particularly in the area of brand building.
For valuable lessons on how to build a respected brand, young car makers like Chery would do well to look to their older brother in the domestic industry, Shanghai Automotive Industry Corp.
Lesson 1: For brand-building, copying international brands is no good.
The first model SAIC built under the Roewe brand, the Roewe 750 mid-sized sedan, was developed on the platform of the Rover 75 it acquired from MG Rover in 2005. Chinese consumers quickly realized SAIC's car was to a great extent a copy of the original. Recognized as such, the Roewe 750 has never truly won the heart of Chinese motorists. In the first quarter of this year, only 2,732 Roewe 750s were sold in China, according to Automotive Resources Asia, a unit of J.D. Power & Associates.
By contrast, SAIC's second own-brand offering, the Roewe 550 compact car, was a completely new model. It was developed by the company's R&D teams in Shanghai and England. With fine materials and a graceful styling, the car was launched at last year's Beijing auto show to wide acclaim. Sales of the new model, which starts at 127,000 yuan ($18,621), are picking up. In the first quarter it shifted 11,774 units.
Lesson 2: Brand-building is costly and therefore requires a focused approach.
Running two joint ventures with Volkswagen AG and General Motors Co., SAIC is by far the most cash-rich automaker in China. Even so, it has long taken a cautious approach towards building the Roewe brand. To date the brand has only had two models; the Roewe 750 and the Roewe 550. While domestic car makers Chery and Geely used this year's Shanghai auto show to display a total of more than 50 models under four sub-brands each, SAIC's president Hu Maoyuan was talking about"integrating existing marketing and sales resources to boost brand recognition and sales volume."
"From both a technology and financing point of view, SAIC stands the best chance of developing a premium brand," said Duan Chengwu, Global Insight's Asia technical research analyst.
What chance do the other domestic Chinese automakers have of developing respected brands for themselves? Unless they adjust their existing product and branding strategy, I am truly pessimistic.
Yang Jian is the managing editor of Automotive News China, a publication of Crain Communications.
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